THIS
SEVERANCE BENEFITS AGREEMENT (the “Agreement”) is made as of the 25thday of
September, 2013 between Active Power, Inc., (the “Company”), and Mark A.
Ascolese, an individual resident of Raleigh, North Carolina (“Employee”).
Employee and the Company are collectively referred to herein as the “Parties.”

1.At-Will
Employment Status.
Employee has accepted employment with the Company on an “at will” basis, which
means that either the Company or Employee may terminate Employee’s employment
with the Company at any time and for any or no reason.

2.Severance
Benefits upon Involuntary Termination Without Cause or Resignation for Good
Reason.
Although Employee’s employment is at-will, if Employee is terminated by the
Company without Cause (as defined below) or resigns with Good Reason (as
defined below), then Employee shall be entitled to receive:

(a)if such
termination by the Company or resignation by the Employee occurs on or prior to
the first to occur of the one (1) year anniversary of the commencement of
Employee’s employment with the Company or the closing of Employee’s relocation
and purchase of a home in Austin, Texas, (i) continuing severance pay at a rate
equal to 100% of Employee’s base salary, as then in effect (less applicable
withholding taxes), for a period of six (6) months from the date of such
termination, to be paid periodically in accordance with the Company’s normal
payroll practices; and (ii) if Employee elects continuation coverage
pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended (“COBRA”), for Employee, within the time period prescribed
pursuant to COBRA, the Company will reimburse Employee for the COBRA premiums
for such coverage (at the coverage levels in effect immediately prior to
Employee’s termination) until the earlier of (i) a period of six (6) months
from the last date of employment of the Employee with the Company, (ii) until
Employee has secured other employment, or (iii) the date Employee is no longer
eligible to receive continuation coverage pursuant to COBRA. COBRA
reimbursements shall be made by the Company to Employee consistent with the
Company’s normal expense reimbursement policy, provided that Employee submits
documentation to the Company substantiating Employee’s payments for such COBRA
coverage.

(b)if such
termination by the Company or resignation by the Employee occurs after the
first to occur of the one (1) year anniversary of the commencement of Employee’s
employment with the Company or the closing of Employee’s relocation and
purchase of a home in Austin, Texas,

(i)continuing
severance pay at a rate equal to 100% of Employee’s base salary, as then in
effect (less applicable withholding taxes), for a period of twelve (12) months
from the date of such termination, to be paid periodically in accordance with
the Company’s normal payroll practices; and

(ii)all stock
options and restricted stock held by Employee in which Employee would have
vested if Employee had remained employed with the Company for a period of
twelve (12) months following the date of termination shall immediately vest
and, if applicable, become exercisable as of the date of termination; and

(iii)if Employee elects
continuation coverage pursuant to COBRA for Employee, within the time period
prescribed pursuant to COBRA, the Company will reimburse Employee for the COBRA
premiums for such coverage (at the coverage levels in effect immediately prior
to Employee’s termination) until the earlier of (i) a period of twelve (12)
months from the last date of employment of the Employee with the Company, (ii)
until Employee has secured other employment, or (iii) the date Employee is no
longer eligible to receive continuation coverage pursuant to COBRA. COBRA
reimbursements shall be made by the Company to Employee consistent with the
Company’s normal expense reimbursement policy, provided that Employee submits
documentation to the Company substantiating Employee’s payments for such COBRA
coverage; and

(iv)all or a portion
of Employee’s bonus under the Company’s Executive Bonus Program, as may be in
effect, for the year in which Employee’s termination without Cause or
resignation for Good Reason occurs, determined as follows: (i) with respect to
corporate or individual objectives that are measured over a period of time
(such as revenue for a fiscal year), the amount of such bonus with respect to
such objective shall be determined based on a comparison of the amount of such objective
actually achieved through the date of such termination against a pro rated
portion (based on a number of days, weeks or months, as applicable, during the
applicable measurement period for which Employee remained a service provider of
the Company) of the target objective, and shall be payable on a pro rata basis
(based on the number of days during the applicable measurement period for which
Employee remained a service provider of the Company), and (ii) with respect to
corporate or individual objectives that are measured based on the occurrence of
a specific event at a point in time, the full amount of such bonus with respect
to such objective shall be payable if such objective is achieved prior to the
date of such termination. All determinations of the amount of the achievement
of such objectives and the amounts of such bonuses shall be made by the Board
of Directors of the Company, in its sole discretion.

3.Acceleration
Upon Termination After a Change in Control. Although Employee’s employment
is at-will, in the event that Employee is terminated by the Company without
Cause or resigns with Good Reason within twelve (12) months after a Change in
Control (as defined below), in addition to the benefits set forth in Sections
2(a), 2(b)(i), 2(b)(iii) and 2(b)(iv), as applicable, but in lieu of the
benefits set forth in Section 2(b)(ii) above, as applicable, one hundred
percent (100%) of the stock options and any restricted stock units held by
Employee prior to the date of the Change of Control shall immediately vest and,
if applicable, become exercisable as of the date of termination.

4.Confidential
Information/ Non-Competition Agreement.

(a)Employee is
employed hereunder by the Company in a confidential relationship wherein
Employee, in the course of his employment with the Company, has and will
continue to become familiar with and aware of Confidential Information (as
defined in the Confidentiality Agreement (as defined below)), including but not
limited to confidential information regarding the Company's customers and
specific manner of doing business, including the processes, techniques and
trade secrets utilized by the Company, and future plans with respect thereto.
In consideration for Employee's promises herein and in the Confidentiality
Agreement, the Company agrees to provide Employee with such Confidential
Information; in return, Employee recognizes and acknowledges that such
information must be maintained in confidence, and to further such protection
agrees to the restrictive covenants set forth in this Section 4.

(b)Employee
acknowledges that Employee’s fulfillment of the obligations contained in this
Agreement, including, but not limited to, Employee’s obligation neither to use,
except for the benefit of the Company, or to disclose the Company’s
Confidential Information and Employee’s obligation not to compete contained in
this Section 4 is necessary to protect the Company’s Confidential Information
and to preserve the Company’s value and goodwill. Employee further acknowledges
the time, geographic and scope limitations of Employee’s obligations under this
Section 4 are reasonable, especially in light of the Company’s desire to
protect its Confidential Information, and that Employee will not be precluded
from gainful employment if Employee is obligated not to compete with the
Company during the period and within the Territory as described in this Section
4.

(c)Employee will
not, during the period of his employment by or with the Company, and for a
period of twelve (12) months immediately following the termination of his
employment with the Company, for any reason whatsoever, directly or indirectly,
for himself or on behalf of or in conjunction with any other person, company,
partnership, corporation, business or entity of whatever nature:

(i)engage, as an
officer, director, shareholder, owner, partner, joint venturer, or in a
managerial capacity, whether as an employee, independent contractor, consultant
or advisor, or as a sales representative, in any business selling any products
or services in direct competition with the Company, within 100 miles of (i) the
principal executive offices of the Company or (ii) any place where the Company
conducts business, provides products or services, or in which the Company
(including the subsidiaries thereof) is in the process of initiating business
operations as of the date on which Employee’s employment by the Company
hereunder is terminated (the “Territory”);

(ii)call upon any
person who is, at that time, within the Territory, an employee of the Company
(including the subsidiaries thereof) in a managerial capacity for the purpose
or with the intent of enticing such employee away from or out of the employ of
the Company (including the subsidiaries thereof);

(iii)call upon any
person or entity which is, at that time, or which has been, within one (1) year
prior to that time, a customer of the Company (including the subsidiaries
thereof') within the Territory for the purpose of soliciting or selling
products or services in direct competition with the Company within the
Territory;

(iv)call upon any
prospective acquisition candidate, on Employee’s own behalf or on behalf of any
competitor, which candidate was either called upon by the Company (including
the subsidiaries thereof) or for which the Company made an acquisition
analysis, for the purpose of acquiring such entity, provided however, that this
section (iv) will not apply if the Company affirmatively declined to proceed
with the acquisition; or

(v)disclose
customers of the Company (or the subsidiaries thereof) to any person, firm,
partnership, corporation or business for any competitive reason. As used in
Section 4(c), references to the business, customers, Territory, etc. of the
Company refer to the status of the Company prior to any Change in Control (i.e.,
such breadth of business, customers, Territory, etc. shall not automatically be
expanded to include those of a successor to the Company resulting from a Change
in Control). Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit Employee from acquiring as an investment not more than three
percent (3%) of the capital stock of a competing business, whose stock is
traded on a national securities exchange or over-the-counter.

(d)Because of the
difficulty of measuring economic losses to the Company as a result of a breach
of the foregoing covenant, and because of the immediate and irreparable damage
that could be caused to the Company for which it would have no other adequate
remedy, Employee agrees that the foregoing covenant may be enforced by the
Company in the event of breach by him by injunctions and restraining orders
without the necessity of posting any bond therefor.

(e)In the course of
Employee’s employment with the Company, Employee will become exposed to certain
of the Company’s confidential information and business relationships, which the
above covenants are designed to protect and Employee agrees to keep such
confidential information in the strictest confidence. It is agreed by the
parties that the foregoing covenants in this Section 4 impose a reasonable
restraint on Employee in light of the activities and business of the Company
(including the Company’s subsidiaries) on the date of the execution of this
Agreement and the current plans of the Company (including the Company’s
subsidiaries); but it is also the intent of the Company and Employee that such
covenants be construed and enforced in accordance with the changing activities,
business and locations of the Company (including the Company’s subsidiaries)
throughout the term of this covenant, subject to the following paragraph. For
example, if, during Employee’s term of employment, the Company (including the
Company’s subsidiaries) engages in new and different activities, enters a new
business or established new locations for its current activities or business in
addition to or other than the activities or business of the Company (including
the Company’s subsidiaries) as of the date of this Agreement or the locations
currently established therefor, then, to the extent described in Section 4(c),
Employee will be precluded from soliciting the customers or employees of such
new activities or business or from such new location and from directly
competing with such new business within 100 miles of its then-established
operating locations through the term of this covenant.

(f)The covenants in
this Section 4 are severable and separate, and the unenforceability of any
specific covenant shall not affect the provisions of any other covenant.
Moreover, in the event any court of competent jurisdiction shall determine that
the scope, time or territorial restrictions set forth herein are unreasonable,
then it is the intention of the Parties that such restrictions be reformed and
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed to such extent.

(g)All of the
covenants in this Section 4 shall be construed as an agreement independent of
any other provision in this Agreement, and the existence of any claim or cause
of action of Employee against the Company, whether predicated on this Agreement
or otherwise, shall not constitute a defense to the enforcement by the Company
of such covenants.

(h)It is
specifically agreed that the period of twelve (12) months following Employee’s
employment set forth at the beginning of this Section 4, during which the
agreements and covenants of Employee made in this Section 4 shall be effective,
shall be computed by excluding from such computation any time during which
Employee is in violation of any provision of this Section 4.

(a)continuing to
comply with the terms of this Agreement and the Employee Proprietary
Information Agreement between Employee and the Company (the “Confidentiality
Agreement”);

(b)signing and not
revoking a separation agreement and release of claims in a form reasonably
acceptable to the Company (the “Release”) which becomes effective and
irrevocable no later than sixty (60) days following the termination date (such
deadline, the “Release Deadline”). If the Release does not become
effective and irrevocable by the Release Deadline, Employee will forfeit any
rights to severance payments and benefits under this Agreement. In no event
will severance payments or benefits be paid or provided until the Release
becomes effective and irrevocable.

(i)In the event the
termination occurs at a time during the calendar year where the Release could
become effective in the calendar year following the calendar year in which
Employee’s termination occurs (whether or not it actually becomes effective in
the following year), then any severance payments and benefits under this
Agreement that would be considered Deferred Payments (as defined in below) will
be paid on the first payroll date to occur during the calendar year following
the calendar year in which such termination occurs, or, if later, (A) the date
the Release actually becomes effective, (B) such time as required by the
payment schedule applicable to each payment or benefit as set forth in Section
2 above or (C) such time as required by Section 8 below.

(ii)No severance
payments and benefits under this Agreement will be paid or provided until the
Release becomes effective and irrevocable, and any such severance payments and
benefits otherwise payable between Employee’s termination date and the date the
Release becomes effective and irrevocable will be paid on the date the Release
becomes effective and irrevocable. In the event of Employee’s death before all
of the severance payments and benefits under this Agreement have been paid,
such unpaid amounts will be paid in a lump sum payment promptly following such
event to Employee’s designated beneficiary, if living, or otherwise to the
personal representative of Employee’s estate; and

(c)in the event of
a resignation for Good Reason, providing the Company with written notice of the
acts or omissions constituting the grounds for Good Reason within ninety (90)
days of the initial existence of the grounds for Good Reason and a reasonable
opportunity for the Company to cure the conditions giving rise to such Good
Reason, which shall not be less than thirty (30) days following the date of
notice from Employee. If the Company cures the conditions giving rise to such
Good Reason within thirty (30) days of the date of such notice, Employee will
not be entitled to severance payments and/or benefits contemplated by Sections
2 or 3 above if Employee thereafter resigns from the Company based on such
grounds. Unless otherwise required by law, no severance payments and/or
benefits under Sections 2 or 3 will be paid and/or provided until after the
expiration of any relevant revocation period.

6.Definitions. For purposes
of this Agreement,

(a)Cause. For purposes
of this Agreement, “Cause” shall mean (i) Employee’s continued failure
to substantially perform the duties and obligations of Employee’s position (for
reasons other than death or Disability (as defined below)), which failure, if
curable within the discretion of the Company, is not cured to the reasonable
satisfaction of the Company within thirty (30) days after receipt of written
notice from the Company of such failure; (ii) Employee’s failure to devote the
same amount of time in the performance of his duties and responsibilities as
Chief Executive Officer as would be expected of a person in the same position
whose principal residence is located in Austin, Texas, which failure, if
curable within the discretion of the Company, is not cured to the reasonable
satisfaction of the Company within thirty (30) days after receipt of written
notice from the Company of such failure; (iii) Employee’s failure or refusal to
comply with reasonable written policies, standards and regulations established
by the Company from time to time which failure, if curable in the discretion of
the Company, is not cured to the reasonable satisfaction of the Company within
thirty (30) days after receipt of written notice of such failure from the
Company; (iv) any act of personal dishonesty, fraud, embezzlement,
misrepresentation, or other unlawful act committed by Employee that results in
a substantial gain or personal enrichment of Employee at the expense of the
Company; (v) Employee’s violation of a federal or state law or regulation
applicable to the Company’s business, which violation was or is reasonably
likely to be materially injurious to the Company; (vi) Employee’s violation of,
or a plea of nolo contendere or guilty to, a felony under the laws of the
United States or any state; (vii) the Employee’s material breach of the terms
of Section 4 of this Agreement or of the Confidentiality Agreement; or (viii)
failing to consent to or to satisfactorily complete the Company’s background
check following his acceptance of employment with the Company or failing to
satisfy the federal immigration requirements set forth under paragraph 10 of
his offer letter.

(b)Change in
Control.
For purposes of this Agreement, “Change in Control” shall mean the
occurrence of any of the following events:

(i)Change in
Ownership of the Company. A change in the ownership of the Company which
occurs on the date that any one person, or more than one person acting as a
group (“Person”), acquires ownership of the stock of the Company that,
together with the stock held by such Person, constitutes more than 50% of the
total voting power of the stock of the Company, except that any change in the
ownership of the stock of the Company as a result of a private financing of the
Company that is approved by the Board will not be considered a Change in
Control; or

(ii)Change in
Effective Control of the Company. If the Company has a class of
securities registered pursuant to Section 12 of the Exchange Act, a change in
the effective control of the Company which occurs on the date that a majority
of members of the Board is replaced during any twelve (12) month period by
directors whose appointment or election is not endorsed by a majority of the
members of the Board prior to the date of the appointment or election. For
purposes of this clause (ii), if any Person is considered to be in effective
control of the Company, the acquisition of additional control of the Company by
the same Person will not be considered a Change in Control; or

(iii)Change in
Ownership of a Substantial Portion of the Company’s Assets. A change in
the ownership of a substantial portion of the Company’s assets which occurs on
the date that any Person acquires (or has acquired during the twelve (12) month
period ending on the date of the most recent acquisition by such person or
persons) assets from the Company that have a total gross fair market value
equal to or more than 50% of the total gross fair market value of all of the
assets of the Company immediately prior to such acquisition or acquisitions.
For purposes of this subsection (iii), gross fair market value means the value
of the assets of the Company, or the value of the assets being disposed of,
determined without regard to any liabilities associated with such assets. For
these purposes, persons will be considered to be acting as a group if they are
owners of a corporation that enters into a merger, consolidation, purchase or
acquisition of stock, or similar business transaction with the Company.
Notwithstanding the foregoing provisions of this definition, a transaction will
not be deemed a Change in Control unless the transaction qualifies as a change
in control event within the meaning of Section 409A. Further and for the
avoidance of doubt, a transaction will not constitute a Change in Control if:
(i) its sole purpose is to change the state of the Company’s incorporation, or
(ii) its sole purpose is to create a holding company that will be owned in
substantially the same proportions by the persons who held the Company’s
securities immediately before such transaction.

(c)Disability. For purposes
of this Agreement, “Disability” shall mean the inability of Employee to
engage in substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or which
has lasted or can be expected to last for a continuous period of not less than
twelve (12) months.

(d)Good Reason. For purposes
of this Agreement, “Good Reason” shall mean, without Employee’s written
consent: (i) there is a material reduction of the level of Employee’s base
compensation (except where there is a general reduction applicable to the
management team generally); (ii) there is a material reduction in Employee’s
overall responsibilities or authority, or scope of duties, provided, however,
that a reduction in responsibilities, authority or duties solely by virtue of
the Company being acquired and made part of a larger entity (as, for example,
when the Chief Executive Officer of the Company remains as such following a
Change of Control but is not made the Chief Executive Officer of the acquiring
corporation) will not constitute “Good Reason” so long as Employee continues to
maintain substantially the same duties and responsibilities with respect to the
primary business of the Company; (iii) the Company’s material breach of this
Agreement or the Employee’s offer letter, which failure is not cured within
thirty (30) days after receipt of written notice from Employee of such failure;
or (iv) a material change in the geographic location at which Employee must
perform his services; provided, that in no instance will the relocation of
Employee to a facility or a location of fifty (50) miles or less from
Employee’s then current office location be deemed material for purposes of this
Agreement. In no instance will a resignation by Employee be deemed to be for
Good Reason if it is made more than twenty four (24) months following the
initial occurrence of any of the events that otherwise would constitute Good
Reason hereunder.

(e)The Board shall
make all determinations relating to termination, including without limitation
any determination regarding Cause.

7.Tax Treatment. The Company
makes no representations or warranties with respect to the tax consequences of
the payment of any sums to Employee under the terms of this Agreement. Employee
agrees and understands that, with the exception of the withholdings from the
severance payments, Employee is responsible for payment of any local, state
and/or federal taxes on the sums paid hereunder by the Company and any
penalties or assessments thereon. Employee further agrees to indemnify and hold
the Company harmless from any claims, demands, deficiencies, penalties,
assessments, executions, judgments, or recoveries by any government agency
against the Company for any amounts claimed due on account of Employee’s
failure to pay federal or state taxes or damages sustained by the Company by
reason of any such claims, including reasonable attorney fees.

8.Section 409A.

(a)Notwithstanding
anything to the contrary in this Agreement, no severance payments or benefits
payable to Employee, if any, pursuant to this Agreement that, when considered
together with any other severance payments or separation benefits, is
considered deferred compensation under Internal Revenue Code Section 409A
(together, the “Deferred Payments”) will be payable until Employee has a
“separation from service” within the meaning of Section 409A (“Section 409A”)
of the Internal Revenue Code of 1986, as amended (the “Code”). Similarly,
no severance payable to Employee, if any, pursuant to this Agreement that
otherwise would be exempt from Section 409A pursuant to Treasury Regulation
Section 1.409A-1(b)(9) will be payable until Employee has a “separation from
service” within the meaning of Section 409A.

(b)Further, if
Employee is a “specified employee” within the meaning of Section 409A at the
time of Employee’s separation from service (other than due to death), any
Deferred Payments that otherwise are payable within the first six (6) months
following Employee’s separation from service will become payable on the first
payroll date that occurs on or after the date six (6) months and one (1) day
following the date of Employee’s separation from service. All subsequent
Deferred Payments, if any, will be payable in accordance with the payment
schedule applicable to each payment or benefit. Notwithstanding anything herein
to the contrary, in the event of Employee’s death following Employee’s
separation from service but prior to the six (6) month anniversary of
Employee’s separation from service (or any later delay date), then any payments
delayed in accordance with this paragraph will be payable in a lump sum as soon
as administratively practicable after the date of Employee’s death and all
other Deferred Payments will be payable in accordance with the payment schedule
applicable to each payment or benefit. Each payment and benefit payable under
the Agreement is intended to constitute a separate payment for purposes of
Section 1.409A-2(b)(2) of the Treasury Regulations.

(c)Any severance
payment that satisfies the requirements of the “short-term deferral” rule set
forth in Section 1.409A-1(b)(4) of the Treasury Regulations shall not
constitute Deferred Payments for purposes of the Agreement. Any severance
payment that qualifies as a payment made as a result of an involuntary
separation from service pursuant to Section 1.409A-1(b)(9)(iii) of the Treasury
Regulations that does not exceed the Section 409A Limit shall not constitute
Deferred Payments for purposes of the Agreement. For purposes of this
subsection (c), “Section 409A Limit” will mean the lesser of two (2)
times: (i) Employee’s annualized compensation based upon the annual rate of pay
paid to Employee during Employee’s taxable year preceding Employee’s taxable
year of Employee’s separation from service as determined under Treasury
Regulation Section 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service
guidance issued with respect thereto; or (ii) the maximum amount that may be
taken into account under a qualified plan pursuant to Section 401(a)(17) of the
Code for the year in which Employee’s employment is terminated.

(d)The foregoing
provisions are intended to comply with the requirements of Section 409A so that
none of the severance payments and benefits to be provided under the Agreement
will be subject to the additional tax imposed under Section 409A, and any
ambiguities herein will be interpreted to so comply. Employee and the Company
agree to work together in good faith to consider amendments to the Agreement
and to take such reasonable actions which are necessary, appropriate or
desirable to avoid imposition of any additional tax or income recognition prior
to actual payment to Employee under Section 409A.

9.Limitation on
Payments.
In the event that the severance and other benefits provided for in this
Agreement or otherwise payable to Employee (i) constitute “parachute payments”
within the meaning of Section 280G of the Code, and (ii) would be subject to
the excise tax imposed by Section 4999 of the Code (the “Excise Tax”),
then Employee's benefits under this Agreement shall be either

(a)delivered in
full, or

(b)delivered as to
such lesser extent which would result in no portion of such benefits being
subject to the Excise Tax, whichever of the foregoing amounts, taking into
account the applicable federal, state and local income taxes and the Excise
Tax, results in the receipt by Employee on an after-tax basis, of the greatest
amount of benefits, notwithstanding that all or some portion of such benefits
may be taxable under Section 4999 of the Code. If a reduction in severance and
other benefits constituting “parachute payments” is necessary so that benefits
are delivered to a lesser extent, reduction will occur in the following order:
reduction of cash payments, cancellation of equity awards granted within the
twelve (12) month period prior to a “change in control” (as determined under
Code Section 280G) that are deemed to have been granted contingent upon the
change in control (as determined under Code Section 280G), cancellation of
accelerated vesting of equity awards, reduction of employee benefits. Unless
the Company and Employee otherwise agree in writing, any determination required
under this Section shall be made in writing by the Company's independent public
accountants (the “Accountants”), whose determination shall be conclusive
and binding upon Employee and the Company for all purposes. For purposes of
making the calculations required by this Section, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of
Section 280G and 4999 of the Code. The Company and Employee shall furnish to
the Accountants such information and documents as the Accountants may
reasonably request in order to make a determination under this Section. The
Company shall bear all costs the Accountants may reasonably incur in connection
with any calculations contemplated by this Section.

10.Confidential
Information.
Employee shall continue to comply with the terms and conditions of the
Confidentiality Agreement, and maintain the confidentiality of all of the
Company’s confidential and proprietary information. Such information includes,
but is not limited to, all customer lists, equipment, records, data, notes,
reports, proposals, correspondence, specifications, drawings, blueprints,
sketches, materials, or other documents or property belonging to the Company.

11.Miscellaneous.

(a)Withholding
Taxes.
The Company may withhold from all benefits payable under this Agreement all
federal, state, city or other taxes as shall be required pursuant to any law or
governmental regulation or ruling.

(b)Entire
Agreement; Binding Effect. This Agreement and the Confidentiality Agreement
set forth the entire understanding between the Parties as to the subject matter
of this Agreement and supersede all prior agreements, commitments,
representations, writings and discussions between them; and neither of the Parties
shall be bound by any obligations, conditions, warranties or representations
with respect to the subject matter of this Agreement, except as expressly
provided herein or therein or as duly set forth on or subsequent to the date
hereof in a written instrument signed by the proper and fully authorized
representative of the party to be bound hereby. This Agreement is binding on
Employee and on the Company and his/her and its successors and assigns (whether
by assignment, by operation of law or otherwise).

(c)Arbitration. The Parties
agree that any and all disputes arising out of, or relating to, the terms of
this Agreement, their interpretation, and any of the matters herein released,
shall be subject to binding arbitration as set forth under Section 10 of the
Confidentiality Agreement.

(d)Governing Law;
Jurisdiction.
This Agreement shall be governed by, and construed and enforced in accordance
with, the employment laws of Texas and the other laws of the State of Texas as
they apply to contracts entered into and wholly to be performed therein by
residents thereof. In addition, each party hereto irrevocably and
unconditionally agrees that, subject to Section 11(c) above, any suit, action
or other legal proceeding arising out of this Agreement may be brought only in
a state or federal court within Texas.

(e)Severability. In the event
that any provision hereof becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement shall
continue in full force and effect without said provision.

(f)Effect of
Headings.
The Section and subsection headings contained herein are for convenience only
and shall not affect the construction hereof.

(g)Counterparts. This Agreement
may be executed in counterparts, each of which shall be deemed to be an
original, and all such counterparts shall constitute but one instrument.

IN WITNESS WHEREOF, the Parties have executed this
Agreement on the dates set forth below.